Real estate recovery could wound itself

Are real estate developers celebrating a rebound too soon? Market experts say a recent rise in property prices could stifle demand than boost profitability for developers, who seem to be in a hurry to force the pace of an incipient recovery.

“It’s a lost opportunity for the developers. The June quarter was the best in terms of sales in three years and the momentum has now lost as prices firmed up. Vacancy levels have gone up,” said Pankaj Kapoor, CEO, Liase Foras, a real estate research firm.

“Within three months, prices have gone up by 10 to 15 per cent which is not a healthy phenomenon. A large number of people still cannot afford to buy despite interest rates dropping to 8 per cent after many years,” Kapoor said.

While those looking for low-cost homes could manage to find houses as per budget, the middle class looking for a Rs 20 lakh to Rs 25 lakh home has landed in a tight spot. Homes at such a price range are not available or the monthly payout is beyond the paying capacity for the bulk of would-be buyers, experts say.

Prices had dropped by 40 per cent during last year’s slump.

“It is true that a sudden price rise would kill demand. The developers should have waited for some more time (to increase prices). Prices should go up at a moderate pace and a 15 per cent annual increase is sustainable not any sudden spurt,” said Abhisheck Lodha, managing director, Lodha Developers, which is currently Mumbai’s biggest developer.